Trade Alert – (MS) August 29, 2012

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.

Trade Alert - (MS)

Sell Short the Morgan Stanley (MS) September $12-$14 put spread at $0.18 or best

Opening Trade

8-29-2012

expiration date: 9-21-2012

Portfolio weighting: 5%

($5,000/100/$0.18) = 60 Contracts

There is a risk that I am dead wrong in my expectation of a market selloff in September. Therefore, I want to protect my exiting position in the (MS) October $13-$15 put spread from a continued sideways, or move up, in the market.

I intend to do this by converting my existing (MS) October $13-$15 put spread into a 1:1:1:1 September/October $15-$14-$13-$12 put ratio. I will do this by selling short the Morgan Stanley (MS) September $14-$12 put spread at $0.18 or best, and keeping the existing October $13-$15 put spread. I know this sounds complicated. But it is the best way to cut your cost of entry to your (MS) $13-$15 put spread in a margin efficient way, while still participating on the downside.

Please also note that I am shorting September (MS) put spread against my long October (MS) put spread. This is known as a calendar spread, or a cylinder, and should reduce your margin requirement. This means that I will have limited downside participation until the September 21 expiration in 15 trading days, and unlimited participation after that.

If (MS) stock stays above $14 by the September 21 expiration, this should add (60 X .18 X 100) = $1,080, or 1.08% to your performance for the notional $100,000 model portfolio.

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It should not be assumed that the methods, techniques, or indicators presented in these pages will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these pages are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.